Carmakers trimming domestic production

Weak demand at home, strong yen accelerate overseas shifts

Japanese automakers have accelerated moves to trim domestic output as much as possible amid the yen’s prolonged strength and dwindling domestic demand.

Industry analysts say expanding overseas production is the first step Japanese automakers can take to improve earnings, since the strong yen erodes profits from exports, and to benefit further from growing overseas markets.

Over the weekend, Toyota Motor Corp. announced it will transfer Japanese production of its North America-bound Yaris compact to France next May. It will be the auto giant’s first time exporting cars to North America from Europe.

The announcement was made after reports said last week that Toyota will cut domestic production capacity to 3.1 million units as early as 2014, from 3.6 million units by the end of this year and 3.9 million units before the financial crisis of 2008.

The decision to shift about 25,000 vehicles worth of output a year from a plant in Aichi Prefecture followed similar cutbacks announced by Toyota’s domestic rivals.

Nissan Motor Co. said Thursday it will halt one of its two production lines at its Oppama plant in Yokosuka, Kanagawa Prefecture, in July and end production there of the Note and Tida compacts and Bluebird Sylphy sedan. This literally means a reduction in annual capacity to 240,000 units from 430,000 units, although the automaker said it will maintain capacity by using the idle line for development of new models.

Honda reportedly elected Friday to halve production at a plant in Saitama Prefecture.

“Automakers are handicapped by the strong yen, so . . . it’s quite natural for them” to cut back on overcapacity, said Chizuko Satsukawa, an auto-sector analyst for Standard & Poor’s Japan.

With the population steadily graying, the Japanese market has little prospect of rebounding sharply in the long term, even if the ¥300 billion government “green car” incentive program shores up demand for a while, she said.

The yen’s persistent strength after breaking its record high against the dollar last year is casting a shadow over earnings, an analyst pointed out.

“We regard a further shift to overseas production as a prerequisite for earnings improvement, assuming a persistently strong yen weighs on export profitability,” Barclays Securities Japan Limited analyst Kei Nihonyanagi said in a report to investors issued last week.

Meanwhile, analysts said it is inevitable for automakers to boost overseas production to meet new demand, not only in China and India but also many more emerging economies.

“For Japan, I believe Japanese automakers should keep their brand strength in countries such as Thailand and Indonesia,” Satsukawa of S&P said.

Japanese makers are currently facing harsh competition in many emerging markets, where Hyundai of South Korea and Volkswagen AG of Germany are making strong showings.

Some speculate Nissan will eventually shift the Oppama plant’s output to Kyushu and Thailand.

But the production transfers will probably not lead to a serious loss of jobs because the curbs have been in place since the 2008 global financial crisis, analysts said.

Toyota said it will make up for the Yaris production shift with other production, possibly for products aimed at domestic or nearby markets.

Toyota, Nissan and Honda Motor Co. have pledged to maintain a minimum amount of domestic production, with Toyota pledging 3 million units and Nissan and Honda 1 million units each.